Great article in the Detroit News today that we wanted to share here with our readers.
It’s about taking advantage of any tax deductions you might be eligible for by the end of the year. In order to qualify for deductions from your 2011 taxes (due April 2012), you’ll have to take steps by December 31st of this year. Although our all-time favorite tax deduction is the deduction you take from interest you pay on your mortgage (helpful hint – the lower your mortage rate, the less interest you pay), here are some other great ideas below.
The 8 tax tips the Detroit News recommends are (from the Detroit News site):
Accelerate deductions and defer income: Make deductible payments and expenditures before the end of the year, and delay receiving any income you can until next year.
For example, local property tax bills due in January that are paid in December can be itemized in this year’s return. Or if you’re eligible for one of the education credits, prepaying tuition or fees may be a smart move.
To reduce income, independent contractors or small business owners who bill for their services might find it to their advantage to hold off sending an invoice until after the New Year. If you plan on selling an investment that has gained in value since you purchased it, wait for January to put off capital gains. And if you get an end-of-the-year bonus, it is likely worthwhile to ask for if you can collect it at the beginning of next year.
Sell losing investments: If you own a stock or other investment that’s lost value this year, selling before 2012 begins could help offset income and lower your tax responsibility. This can be particularly helpful if you’ve already sold another investment with a gain, because up to $3,000 of losses can be used to offset gains.
Save energy and tax dollars: Among the credits expiring at the end of 2011 is one that allows a claim of up to $500 for energy efficiency improvements to a home, including steps like installing new windows, a new boiler or insulation. This is a lifetime credit, so if you’ve already taken it in a previous year, you can’t claim it again. And the work has to be done by the end of the year for the purchase to qualify, so make sure you have someone lined up for installation if you’re not the do-it-yourself type.
Do some health care calculations: Medical expenses are deductible only to the extent that they top 7.5 percent of your adjusted gross income.
That’s a difficult threshold to reach. But if you’re near that line, prepaying an upcoming health insurance bill or scheduling an elective procedure for before the year ends could result in some of those costs being deductible. It makes sense to time your health care spending to maximize the potential for a deduction.
Make a major purchase: Through the end of the year, taxpayers have an option to deduct state and local sales taxes in place of state and local income taxes on federal returns. If you’re planning on a major purchase like a car or household appliance soon, it might be worthwhile to buy it this month to boost that sales tax deduction. If a car is on your wish list, there are also credits of up to $7,500 available for plug-in electric cars like the Nissan Leaf and Chevy Volt.
Maximize work expenses: The special $250-per-year deduction for teachers who use their own cash to pay for classroom supplies expires at the end of 2011, so teachers should try to reach that limit before then. If you buy your own supplies, such as uniforms or computers for work, making the purchase before the end of the year can help boost unreimbursed employee expenses. Also consider pre-paying dues for unions and professional organizations, licensing fees and similar costs for 2012.
Keep searching for a job: If you’re out of work, don’t give up looking during the holiday season. Costs for looking for a job, including resume preparation fees and money spent traveling for job interviews, are deductible. Receipts, credit card statements, travel logs and related material to back up the claims are required, so maintain precise records.
Donate wisely: The holiday season is a popular time to make charitable donations, but cash dropped into a street corner kettle is not deductible. You must have receipts, credit card statements or canceled checks for all donations, and any donation over $250 also requires an acknowledgement letter from the charity that received it.
Those interested in donating can check out this nifty list of some great ideas for tax-deductible charitable donations that Shannon put together.
I just got an email from Consumers Energy (my natural gas provider). They listed several tax credits that expiring this year. I won’t be taking advantage of any of them, but the the thought was nice. My point is that you probably have easy access to lots of the info you need to find year end tax deductions.
I personally plan on getting all of my tax info together in the next few weeks and making sure I’m taking advantage of all my tax deductions. I know I have a few donations to make before year’s end. I’ll send some money to the Michigan Opera Theatre, Home Fur-Ever, the Michigan Humane Society, and probably a few other places. Maybe WDET?
Happy tax deducting, folks!